Fraud and the liability of company directors - Australian Institute of ...

2.
Where a person is charged with an offence against this section, it is a
defence to the charge if the person satisfies the court that he or she had
no reasonable grounds for suspecting that the property referred to in the
charge was derived or realised, directly or indirectly, from some form of
unlawful activity.
The offence of receipt or possession of suspected proceeds of crime under s. 82 is
akin to the offence of being in custody of something reasonably suspected to be
stolen (compare Crimes Act (NSW), s. 527C). However, there are several
significant differences:
● the maximum penalty is higher (2 years, as compared with 6 months);
● under s. 82 there need be reasonable suspicion only that the money or
property amounts to proceeds of crime whereas under Crimes Act (NSW),
s. 527C there must be reasonable suspicion that the thing in D's custody is
itself stolen (Grant (1980) 55 ALJR 490); and
● under s. 82 there is no requirement that the accused be caught red-handed
with the property subject to prosecution (compare Crimes Act (NSW), s.
527C; English (1989) 44 A Crim R 273).
The offence under s. 82, although claimed to be similar to that under s. 527C of
the Crimes Act (NSW), is much more broadly defined and is inconsistent with the
policy concerns expressed in Grant (1980) 55 ALJR 490.
The implications of the offences under sections 81 and 82 are far-reaching.
Consider for example the fact situation in the Guinness case (see further Hobson
1990; Hill 1991). Guinness became involved in a contested takeover bid for the
Distillers company. The market value of Guinness shares was critical to the bid
because part of the offer consisted of Guinness stock. The market was
manipulated by parties acting in cahoots with Guinness and who bought
Guinness shares pursuant to a scheme whereby they were indemnified against
loss by Guinness. After Guinness succeeded in the bid for Distillers the other
parties to the scheme of market manipulation were left with large parcels of
Guinness shares. Assuming that the facts took place here today and that the
parties were convicted of market manipulation under s. 998(1), then anyone who
later bought those shares would commit the offence of money laundering if they
had reason to know that the shares were involved in the market manipulation
scheme. And if the directors of Guinness later indemnified the other parties
against loss then all concerned would be guilty of money laundering in relation to
that transaction: the transaction would 'involve' proceeds of crime - the shares -
within the meaning of s. 81(3)(a).
The money laundering offence under s. 81 also criminalises the receipt of funds
by directors or their companies in the context of deals which, unlike the Guinness
scam, are not blatantly illegal and which have hitherto been accepted as within
fairly safe bounds. Assume that A, a director of company X, organises and
obtains for himself a special consulting fee of $1 million. The payment is in
breach of s. 232(3) of the Corporations Law. A later invests the $1 million in
company Y under a deal that he arranged with the directors of company Y after
he landed the consulting fee from company X. If the directors have reason to